Global Markets React to Chinese Turmoil

Global equity markets experienced their worst week in over 4 years to start off the year. U.S. stocks fell for the third day in a row as investors maintained their risk-off mentality while China tries to calm their volatile markets. Concerns over a contagion effect stemming from a Chinese equity meltdown were reduced today as Chinese officials set a higher yuan reference rate, suspended the controversial circuit breaker system that had halted equity trading twice in the first week it was implemented and directed state controlled funds to buy local equity shares to serve as a backdrop to their markets.

Although U.S. equity markets finished lower today there were some positive signs that suggest China will continue to do whatever it takes to support their economy and equity markets which should help restore confidence for investors. However, as we discussed in our email yesterday, this government intervention is actually one of their long term transitory problems. These Chinese problems will continue to persist over the next few years and we expect increased volatility in equity markets while they continue to work through transitioning to a more free market economy. However, we must continue to focus on fundamentals as the key drivers for portfolio performance.

U.S. Adds 292,000 Jobs in December:

This morning, the Department of Labor reported the U.S. added 292,000 jobs in December, far exceeding the average economist estimate of 200,000. The unemployment rate matched expectations, remaining unchanged at 5%. November’s jobs numbers were also revised upwards by 50,000 to 252,000. The strongest jobs gains were in professional and business services, which saw a 73,000 gain. Construction payrolls added 45,000, despite some adverse weather conditions around the country.

Wages fell slightly last month and remains the negative within an otherwise stellar job report. The average hourly wage dipped a penny to $25.24. Year over year, the average hourly earnings rose 2.5%. This increase represents a modest gain, as historically a 4% increase is seen.

Still, the jobs report lifted the market, albeit for only part of the day. The selling pressure overcame the jobs numbers to see the day finish lower.

Earnings Season Begins Next Week:

Though there are still macroeconomic worries around the world, most notably in China, we are about to enter earnings season here in the U.S. Alcoa (AA) will kick things off next week when they announce earnings on Monday. Nine of the ten sectors are expected to report higher earnings in 2016 relative to 2015 led by the Consumer Discretionary sector. The Energy sector is the only sector projected to report a year-over-year decline.

Some other notable companies scheduled to report next week are Intel (INTC), JP Morgan (JPM), Blackrock (BLK), Citigroup (C), Fastenal (FAST), and Wells Fargo (WFC).

Financial New Year’s Resolutions:

Now the we have officially rung in the new year, many of us find ourselves making resolutions in order to lose weight, eat healthier, spend more time with family, etc. Consider adding some financial resolutions to these as well. Below are a few brief suggestions.

• Increase your retirement plan contributions. If you participate in a retirement plan, like a 401(k) or 403(b), consider increasing the contributions from your paycheck. Due to compound interest, over time, a 1% increase in your contributions now can lead to drastically more savings down the road.
• Consider opening a Traditional IRA or Roth IRA. Even though 2015 has come to a close, you have until April 15th to open and contribute to a Traditional or Roth IRA. A Traditional IRA may give you the advantage of deducting your contributions from your income, while a Roth IRA allows you to put after-tax money to work for the 2015 year.
• Start monthly contributions to your brokerage account (or raise them). If you have not yet begun contributing regularly to a brokerage account, now is a good time to set up a periodic contribution. If you already are contributing, consider increasing this amount. Over time, every little bit extra that can be saved can make a big difference.
• Up your debt payments. If you have a mortgage payment, student debt payment, etc., consider paying extra principle each month. You can vary this from month to month, but the more you can afford to pay now, the sooner you will relieve yourself of this debt obligation.
• Start monthly contributions to charity. Often times, we will deal with clients who would like to contribute to a charity to help reduce their income taxes (among other reasons). While paying a lump sum at the end of the year is certainly fine, you can spread out the gift over the full calendar year in order to avoid writing a large check at year end.
• Strengthen your passwords. We see many instances of emails being hacked, followed by an email to our office asking for account sensitive information. Often times, this is due to a weak password that is easy to hack/guess. Try using longer, more complex, and special characters (like $, %, etc) to help strengthen your password.

 

This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.